The Other Shoe Drops at Delta: Revenue-Based Program Starts Next Year

As though Delta’s recent award chart devaluation wasn’t bad enough (and Delta thought it wasn’t, since they announced a no-notice devaluation to tied them over to the previously announced devaluation), the Skymiles program has come out with the major restructuring we’ve all been fearing for the last couple of years. Details are now up on the Delta website.

  • For Delta marketed or ticketed flights (purchased from Delta, or with a Delta flight number) earning will be based on ticket cost beginning January 1, 2015.
  • We’re getting 5 redemption tiers for bookings made January 1, 2015 onward, but Delta hasn’t shared details on what those will look like — and won’t until the fourth quarter.

Delta’s been pushing towards revenue-based programs for years, they made changes to the earning structure (that they backed off from) 11 years ago and their three tiered redemption structure was a move towards revenue-based as well.

Revenue-based programs take away the ability to derive extraordinary value. And this undermines loyalty.

I’ve been saying that revenue-based changes are coming to Delta, that the minimum spend requirement for elite status wasn’t the end of their changes. Internal memos about upcoming changes were leaked two years ago, but then when the changes came many members got complacent.

I kept beating the drum to remind that this was not dead. In fact the system was supposed to be ready to go last summer. I understand there were some tech problems, and some nervousness among senior leadership. Looks like they’ve finally come close to overcoming those challenges.

Earning Miles Will Be Based on Spending, With Fewer Miles Earned – For Everyone – Than Today

Here’s the new earning structure for tickets purchased from Delta:

  • Base members earn 5 miles per dollar spent
  • Silver Members earn 7 miles per dollar spent (40% elite bonus)
  • Gold Members earn 8 miles per dollar spent (60% elite bonus)
  • Platinum Members earn 9 miles per dollar spent (80% elite bonus)
  • Diamond Members earn 11 miles per dollar spent (120% elite bonus)

​Qualifying revenue is base fare and “carrier-imposed surcharges” (fuel surcharges), but excluding taxes.

But distance-based earning isn’t entirely going away. Tickets purchased from third parties, and travel on other carriers credited to Delta Skymiles, will earn a percentage of miles flown based on fare class, details of which haven’t been announced yet (and may not be for awhile).

Let’s have a look at current fares for a long haul trip to Singapore. It’s about 20,000 flown miles roundtrip.

Fares vary wildly, though I have no problem pricing tickets a few weeks from now at the lowest fare listed below ($1060.20 all-in with tax).

But let’s take the highest coach fare on this list, not the lowest, to portray the idea of “Delta rewarding its best customers” under the new system and see how it compares.

In every case for this trip, the new revenue-based system earns fewer miles under this system:

Of course, expensive short haul flights will show a different result. And expensive business class fares may as well.

We Know Very Little About Redemption, But That’s Changing in a Big Way Too

We’re not getting pure revenue-based redemption the way that Southwest and JetBlue have, with floating mileage prices based on ticket cost for a particular flight. Instead we’re getting more award levels, a more complicated program, that tries to more closely align with ticket costs.

While Delta won’t share their full new award details until the fourth quarter (remember, Delta plays dirty pool and won’t respect their members enough to give advance notice of award chart changes as a matter of policy), here’s what we know:

  • There will be (5) redemption tiers, up from three
  • Flights will track the cost of tickets. We can expect premium cabin awards to go up markedly
  • They’ll introduce one-way awards and a “miles and cash” option for all members

And don’t forget, that revenue-based programs devalue, too so don’t expect whatever details come out to be a consistent value proposition into the future either.

So How Bad Is It?

We don’t know what the final composition of the changes will look like, since we don’t have details on partner airline earning or on the five redemption tiers. But the changes clearly aren’t overall good for the majority of members.

The changes to earning are purely prospective. One fear was — and Delta looked at this — existing miles would convert to a new currency, and not at a favorable rate. That isn’t happening. So it could have been worse.

And the changes are not all bad, I like the introduction of one-way awards and there will be some flights that get cheaper (although these would also be the ones cheapest to buy that you shouldn’t have been using miles for anyway). And though opinions are mixed, I see recent changes to elite upgrades as a net positive.

Overall though most members will earn fewer miles, and the tickets where it made sense to redeem miles (because they were costly relative to mileage cost) will go up in price. Worse on the earn, and worse on the burn.

If all they wanted to do was reward premium business, they could have increased bonus miles for premium cabin fares. They’re not doing that. And many premium passengers will be worse off under the new system, though changes make the program increasingly complicated and as a result many won’t realize it.

I think that revenue-based programs can be bad for the airlines, not just consumers. They kill the golden goose. Frequent flyer programs are the most successful marketing innovation in history, and they are profitable.

Frequent flyer programs devalue. It’s best to diversify mileage holdings as a hedge against revenue-based changes and look to some international programs for outsized value. And while other airlines will look at changes like this, it’s far from a foregone conclusion that they all follow.


About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. I’ll ask for some speculation here – will this drive high revenue pax – paid F and C, especially TPAC and TATL from UA and AA to DL. Obviously, if one is a ihgh revenue pax, this is, for now, good news.

    Or, are most folks unaware of how to goose the system to change their buying patterns? Or, are purchased F and C pax travelling on some form of corporate arrangement which tied them to a particular carrier?

  2. Gary–
    I think you must be mistaken, Deltapoints says these changes will be good for us, open many new opportunities, and help cleanse the airline of those pesky educated frequent flyers. In fact, he’s proclaiming it’s the “year to earn” on Delta.

  3. Nothing to worry about.

    I have it on good authority that it’s actually ILLEGAL for Delta to announce these changes in advance. If announcing the changes is illegal, I would argue that the changes themselves, ipso facto, are illegal.

  4. Gary
    I’m an new ATL-based flyer that was planning on flying DL while using my AS status to earn miles. Do you think this program change along with battle out in SEA is a sign that earning miles across both airlines from the partnership is in jeopardy? In other words, should I change my game plan and bail on earning AS miles in favor of establishing status and as many skypesos as possible with DL?

  5. Seriously, there’s just so many unknowns in this.

    The biggest issue is that for some flights at least they will be driving sales away from their website to third parties and even other carriers. How many sales depends on where they set the earning levels — but many tickets for non-elites are going to earn less than half the mileage based earning amount and to overcome that they would have to set the earning ratio for other parties at less than 50%.

    Also, how will status be determined? Logically, it should follow the base earning rate of 5 miles per dollar (just as Medallion Qualifying Miles follow the base rate of SkyMiles accrual). MQMs, after all, are just a preferred form of SkyMiles. If they stick with the current Medallion system there will be totally unrelated mileage currencies in play.

  6. Eh – I don’t think it’s that bad. From an earning perspective, sure it kills mileage runs, but we kind of knew that was on the way out anyways, and personally I didn’t do much flying on Delta to earn miles (I earn most of my miles / points via CC spend and bonuses)

    Obviously it depends on the details on redemptions, but when they talk about a “more complicated” program, I view that as a positive – I feel more confident that the more complicated the program, the more I (and you and the good folks at Flyertalk) will be able to find / exploit the loopholes

  7. Based on my travel mix and MQDs from last year, this change would be a very slight positive for me – I’d be up about 4000 redeemable miles on 200K BIS.

    So ho hum…

  8. @Robert, this is a little bit misleading (sorry, if it is not, but only MY misunderstanding ;-))
    I don’t know what DeltaPoints will post soon. And where he sees opportunities.
    But his “year to earn” comment somehow is understandable. This year earning is much better than next year, isn’t it?
    We don’t know yet, how the redemption side will look like next year. But this year same flights earn a whole lot more miles than next year.

  9. @LarryInNYC, as Delta puts it, MQM earnings are not changed. And the requirements for reaching Medallion levels won’t change (at least not next year).
    It may seem illogical, but I see some sense here.
    It’s a bit like with hotel loyalty programs. You earn status based on stays/nights, no matter, how much you pay for your stays. But you earn redeemable points based on your spend.
    And with Delta, you earn your status based on miles or segments flown (okay, I skip the MQD requirement). But redeemable miles are earned based on your dollar spend.

  10. Agree with Larry, still too many unknowns.

    MQMs will still be earned the same way, so this won’t affect my elite status. That’s a relief.

    Plus, a majority of my miles come from credit card spending rather than flying, so I don’t expect a big drop in my overall total number of miles (it will go down somewhat, but probably not that much, although the mileage runner will feel the pain).

    The real question is how availability looks with the 5 tiers. This could really gut the program if the only domestic awards you can get for 25k SkyMiles are $150 tickets (something you shouldn’t have been using miles on in the first place). Say, for example, business awards to Europe stay at 125k in the lowest tier, but availability is non-existent and now 150k or 175k is the new normal. That’s where it gets ugly.

  11. I stopped using Delta long ago , their award tickets were just a bad deal. No use earning when the value was much better everywhere else.

    I was a united fan until the recent changes now I am booking whenever I can on USAIR-American

    Hopefully they will appreciate the business

  12. I’ll bet a gazillion Bitcoins these “improvements” will take place prior to January 1, 2015. Knowing Delta’s pattern of unannounced implemenation at any time, it will take place Q4 2014 with little or no advance notice.

  13. I don’t mind this at all as long as only Delta does this. For me, my big stash of skypesos were practically worthless because they are so hard to use, and something that is worthless can’t really devalue any further.

    But I’m very scared that the other airlines will follow. I sure hope you are right that it isn’t a foregone conclusion. I think that it will erode loyalty, and I hope the other airlines see that.

  14. @Beavis – I’d expect the other airlines to implement it, or at least look at it hard.

    I tend to agree with you that this program (at least as currently announced / understood) will erode loyalty – why would you fly Delta loyally in most use cases?

    If that is the case, then that may be the only way that UA and AA don’t follow suit

  15. And to think this is the same airline that once offered round trip travel on Concorde for 160k miles!

    I’m looking forward to being able to burn the last of my Delta miles on a one-way award. Then I can finally say goodbye to what was once (under the Northwest brand) my favorite program.

  16. I was too late to the flyertalk party or even the inside flyer party to go on the Concorde.
    But an RDM is an actual cost to DL
    A MQM has no direct real cost – it is an imagined benefit with marginal indirect cost to DL (free upgrades, free award cancel etc etc)

    What they are doing is giving a rebate for travel back to you, from 5-11%; instead of the 10 to 25% as before.
    I can understand why they did not touch Elite status

    For now to get to PM using MQM alone = 15k MQM x 5 = 75k MQM = 60×5=300k spend on Amex(es)
    That will give about 3000$ to DL and 3000$ to Amex
    and they will give you about about 450000 miles (cost on books of 2250$) a real benefit of around 4000$ to them

  17. There is a side benefit. You will earn more miles by taking the more expensive direct flight than taking the less expensive connecting flight. Many more will be willing to do this now, as long as their corporate booking system lets them.

  18. I think Gary might be overly critical here if the redemption side works out as I think. The two main ways I get outsized value in redeeming are a last minute domestic flights and an aspirational coach class vacation to Asia (I am a silver with about 100k skymiles so I am not on the heavy hitter level of redeeming for premium cabin). The addition of one way awards and the fact that redemption will be like a hotel property classification chart rather than based on dollar value will actually make it easier to get value on last minute domestic tickets that cost a ton even if planes are pretty wide open in terms of load. Also, with regard both to this and international travel, I suspect at least one of the new tier levels will slide between saver and the mid level, so that will help a lot given that saver is so hard to find now. In short, I think I can get back what I lose on earning in burning. Even for cheap ticket from Austin to Atlanta of $160, as a silver my earning won’t change that much. I do see that those who travel frequently on low fare long transatal

  19. Beavis — I honestly think the actual intent is to “erode loyalty.” Delta has clearly wanted to shed excess Elites for some time. So for them that’s a feature not a bug. If the other two legacies also feel they have too many entitled Elites, then there’s no reason they wouldn’t follow suit. Industry consolidation is bad for intelligent consumers. My favorite example: Lots of people made a full or part-time income going to casinos in the 90s thanks to all the promotions. Then the gambling industry consolidated and the worthwhile promotions went away. Some people couldn’t give up the lifestyle, refused to admit the diminishing returns for increasing effort, and so they went down with the ship…This is the same song, second verse in my opinion.

  20. I don’t think anyone can really say for certain what the effect will be until we know what the award charts look like. It boggles the mind that DL didn’t release that. The only reasons I can think of for not releasing the award charts at the same time as the other changes are 1) They’re TRYING INTENTIONALLY to piss people off; 2) They really are stupid enough to think people won’t want to know.

  21. @kimmie a — great comment! Of course, Delta’s official communication would read something like, “Due to overwhelmingly positive response to the new SkyMiles Program, we’ve listened to our customers and will be implementing it earlier than planned.” Yeah, as if…

  22. The elite qualification seems to stay in place, so the same people as under the current system will qualify for elite status in future.

    The mileage earning means people who fly more expensive fares will earn more miles, and those who fly cheaper fares earn fewer miles, so the ‘free travel’ rewards go to higher revenue customers. The “cost” of miles earned through credit cards isn’t changing so the “reward” earned through credit card spend isn’t affected. And partner earning probably will be rewarded less than Delta flying.

    Assuming the reward redemption chart is a slight devaluation also, overall the changes are probably a considerable devaluation to cheap fare flyers, a slight devaluation for credit card holders, and a wash or even a win for high fare flyers.

    For hub captives with shorter flights and high fares, I would guess this will actually be a decent win.

  23. I don’t think that the cc bonus of 2 extra miles/dollar should even be considered, as it is already 2 miles/dollar spent currently. Moreover, most would still put flight expenses on either amex gold/csp. Delta is smart in putting the 2 miles into calculation, but this is very shady of them.

  24. Gary — for all these wags saying how airlines should reward their most valuable customers….. I think it time for you to explain for the 178th time that the economics of running an airline are very unique.

    Fixed costs vs. Marginal costs. That’s what it’s all about, and sadly, we live in a world where nobody gets it.

  25. It think the great mystery in all of this is how does redemption change? I sure don’t like the 125K new low level for Europe, but if those low level biz class redemptions remain, I will be sticking with Delta. If they some how completely gut biz class rewards, I am gone.

    That simple. Gary, any guesses what will happen?

  26. It’s very coy of them to only promise that the lowest redemption for domestic flights will stay at 25,000–which seems to be a magic number that is untouchable. Definitely leaves open the door for huge changes in international business and domestic first redemption rates, even at the lowest level.
    I guess I’ll try to book my last couple premium cabin trips this year because I sure won’t be able to ever afford them with cash or with miles if the system changes drastically from where we are now.

  27. Missed:

    “We can expect premium cabin awards to go up markedly.”

    How do you know that for sure? That would be an absolute gutting of the program and they’d be crazy to go that far.

  28. I plan to burn as many Delta miles as possible on premium class international tickets by the end of the year, and plan to suggest same to my readers. Do you agree?

  29. Thanks for the quick take on what’s unfolding here, Gary. I don’t know if any of the Delta suits read this blog and its comments, or care about what’s said and the feelings the comments reflect. But if they do, here’s one take:
    I used to be a loyal Delta flyer with elite membership. As SkyMiles became Sky Pesos — as Delta changed the program, made redemption extraordinarily difficult, and forced members not within easy driving distance of a Delta hub to purchase the domestic legs of international award tickets — I switched my loyalty to another airline and FF program.
    Last year’s back-to-back devaluations were the last straw. I used up my miles before deval for C class tickets, and whenever I now fly Delta (only when there is no close competition for price, service, convenience), I put the miles in Alaska Air’s program. I cancelled a SkyMiles AmEx card. I’ll keep my Sky Miles account in case, surprisingly, there’s a good deal for a premium trip that matches my needs, in which case I’ll transfer in points from Starwood.
    Otherwise, to use your terminology, Gary, but apply it to my individual situation, Delta HAS killed the golden goose. They’ve lost me as a regular customer AND as a meaningful participant in SkyMiles (two different things — both with revenue implications for Delta). If my story repeats enough, Delta’s bottom line will feel the effects. That’s sad for the traveling public, and sad for Delta, its employees, and its stockholders.

  30. @THEsocalledfan

    My impression is also that premium class tickets will go up quite a bit. Especially the places you want to go. December-February in Australia? Probably the tier possible. May-September (at least) to Paris? Probably the highest tier possible.

    January to Madison (And, I say that as a Madison resident)…probably a low tier.

  31. Perhaps there is a bit of candor contained herein.

    Skymiles is not a frequent flyer program like it once was. Nor is Mileage Plus, not is Aadvantage.

    They are all loyalty programs founded by airlines but which operate more and more as modern day S & H greenstamps. Mileage flown is a way of earning points (and lets be honest, they are “points”), but that is the minority of points issued.

    Miles flown does impact elite status. Nevertheless, all of the programs have been marginalized into everyday loyalty programs with some supersized aspirational awards. To some extent this action rationalizes the Skymiles program by defining points awarded not by distance flown, but, like most miles earning opportunities, by cash spent.

    I posit it had to happen the more and more miles get earned based on cash spent through non-flying opportunities.

  32. I move to rename skypesos to skydung. I would’ve said skydong but that’s an insult to the Vietnamese currency. So skydung it is, who’s with me?

  33. After years of my employer paying for flights to many destinations……..many times less than 200/ 300 miles….they now use GotoMeeting, videoconferences, webinars and telephone conferencing to save on paying for hotel, airfares, meals etc………..Delta and others will at some point understand that there is a limit to what businesses can afford, and what leisure travelers will pay

  34. Its a great time to have someone else buy your tkts. There is absolutely no reason to be loyal to any airline anymore. I celebrate this. I no longer have to worry about diamond or 1K. I hope for the day when Emirates sill start domestic service, there will be absolutely no reason to fly the current airlines and their fleet of old or new trash. I will never worry about miles again, after my conversation who had his miles terminated its really pointless to bother with them if you cant use them and they can disappear at anytime.

  35. If all the airlines continue to gut their programs nobody will care about earning miles. Since they have unbundled everything it makes sense to just add things a la carte and go with the lowest cost carrier. I’m not sure this is going to make them as much money. But we will see.

  36. Not a Delta customer but a regular regional traveler on US Air. I still don’t understand the backlash against this from a business traveler perspective. Using actual data, if I take 30 trips a year, with an average of 1,000 miles round trip and an average ticket cost of $450 I’m paying $13,500 to meet the minimum threshold for Gold Status from a segment perspective (60) but not even close from a miles perspective (30,000 actual vs. 50,000 needed).

    Compare that with someone who flies coast to coast once a month at the same base fare (many times its even less than $450 from Boston to LA). They earn over 60,000 miles on 12 trips (24 segments) at a total cost of $5,400. If I’m paying almost 3 times the cost and ‘experiencing’ the airline 2.5 times as much, then why wouldn’t they want to focus on my loyalty more than the traveler who flies more miles, but flies significantly less and pays significantly less.

    In the example above, one less segment for me and I’m relegated to Silver, while a couple more flights for the coast-to-coast traveler and they’re platinum, yet the frequency and economic disparity of the equation doesn’t change materially at all.

    Someone help me out with this.

  37. This is wishful thinking, I hope the new American gets it and understands the balance between loyalty, revenue and profitability. I do not fly Delta, I will relinquish my Delta credit card soon. I am beginning to distance myself from United because of the changes and loss of USAIR to star alliance. Everything seems to go in cycles, we seem to be in a bad phase.

  38. How is this bad for the airline? It incentivized the high value C/F international business flyers (I can earn 75k in just 1 tpac flight). You seem to think people will dump Delta but the only people who will do so are the low value economy flyers and where will they go? Spirit? Southwest?

    Let’s face it if you currently fly DL it is not for the sky pesos, it is because the flights are convenient and you like the free upgrades (which we never see anymore on UA domestic). The kettles aren’t going to miss a few sky pesos anymore than they miss their RR 1.0 credits on WN.

  39. Gary, nice analysis! a few caveats:
    1. the “additional” earning that “Purchasing ticket with a Delta co-brand credit card earns an additional 2 miles per dollar spent” is indeed bogus. These 2 mile/$ are NOT awarded through delta, but through AMEX, which is the current standard offer from AMEX co-branded cards. Therefore, it could be misleading that your analysis chart includes a separate line of “Revenue-based (AMEX)”, without also including another line of “Current/distance based (AMEX)”, as that portion (2 miles/$ from AMEX) remains unchanged, and one should either include or not in both pre- and post-devaluation calculations.
    2. There is evidence that this 2 miles/$ comes from AMEX instead of DL. According to delta, “Ticket price used to calculate miles earned includes base fare and carrier-imposed surcharges, and excludes government-imposed taxes and fees.” However, for the so called “additional earning” by purchasing tickets using AMEX, the terms reads
    “This offer applies to qualifying Delta, Delta Connection® carrier and Delta Shuttle® flights taken with the purchase of a fare that is eligible for SkyMiles mileage credit. The total ticket price, including base fare, carrier-imposed surcharges and government-imposed taxes and fees is eligible to earn double miles. ”
    This (the inclusion of government imposed charges) clearly shows that the mileage calculation is based on the total charge to AMEX, and is completely different from the mileage earned from DL.
    3. Accordingly your calculations in the third line “Revenue-based (AMEX)” in the chart is slightly off by not including the taxes…..

  40. @jfhscott: A lot of business travelers are on corporate travel contracts and are thus tied to a particular airline. One take away from this is that their discounted business class fares may be similar to what mortals might pay for expensive coach tickets (Jetblue gave some insight into this when they explained why they were pricing Mint so cheaply), so looking at the list prices for full J may be inappropriate even for figuring out how much someone on a DL corporate contract is going to be earning.

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